Market expansion vs distribution three key differences
02 Jun 2020
Business owners and managers spend a lot of time trying to find better ways to hit higher growth, increase revenues and establish a stronger brand presence in markets they operate in. Often, they can choose to adopt new market expansion strategies or go towards enhancing their existing distribution approach for their products.
For those who are still not aware of it, yes, there are several key differences between market expansion and distribution.
By definition, market expansion is a business growth strategy and usually adopted when growth peaks in existing channels. Distribution, on the other hand, is about making a product available for purchase by dispersing it through the market. It is about getting products from point A to point B and involves transportation, packaging and delivery.
To help you better understand both activities, here are three key differences between a market expansion strategy and a distribution approach.
1. Grow existing channels or open new markets?
As markets are becoming more dynamic and evolving all the time, this brings about challenges, opportunities and growth in terms of distribution channels for your goods and services. In terms of distribution, these channels refer to the flow of business that occurs between a manufacturer and a consumer. These channels need to be adjusted, retracted or expanded in response. They also need to be continuously measured and monitored.
There are direct and indirect channels. In a direct channel, the product owner reaches out directly to the consumers including in-house sales force, telephone sales, website as well as eCommerce platforms. An important factor to consider when implementing a direct distribution strategy is the amount of investment required. You will need to add warehouse, transport and delivery to your business operation costs.
An indirect channel involves intermediaries like distributors that assist in the logistics and placement of products so that they reach customers faster. Taking the Indonesian market for example, for many businesses entering the market, having to navigate a vast archipelago of islands and disconnected cities can be a daunting task. This is where the indirect approach makes better sense.
Market expansion is not merely about where to move within a market or where a product should be placed. But rather, it is focused on penetrating entirely new market areas. For example, a company may adopt this strategy when growth has leveled-off in existing markets or when there is an opportunity for higher return-on-investment elsewhere.
To enter a new market requires a good understanding of sales channels, logistics, demographics and regulatory obstacles. Localized knowledge is essential, in addition to having a clear strategy involving price, promotion, product and place.
2. Enhance the distribution network or new omni-channels?
A distribution strategy is a method of disseminating goods or services to consumers. These strategies are often designed to maximize the sales of products as they enter a market. They depend on the type of product being sold and knowing what type of distribution you will need to achieve your goals.
The common questions asked include: How does your average customer purchase your goods? How can you make the purchasing process easier? Can they buy from you directly in addition to the present network of retailers?
There are several broad methods of distribution including having an intensive approach which means having as many outlets as possible. This method is ideal for a large volume of goods made available in multiple locations. Often, these products are routine purchases that involve very minimal effort to sell.
Next is selective distribution whereby a limited number of outlets in chosen locations are utilized to sell your products. This method works best when consumers have a strong preference for a particular brand or price and will search out the specific outlets.
Another option is to have an exclusive distribution where only one or selected wholesalers, retailers or distributors are relied to sell the product. This is common for luxury brands that are targeted towards specific consumers.
Instead of focusing on your existing distribution channels, why not consider having an omni-channel strategy? This is where a key facet of market expansion strategy comes into play.
An omni-channel approach is about providing consumers with a fully integrated seamless shopping experience by bringing a synergy between multiple retail channels including brick-and-mortar stores, online, mobile platforms, digital advertising and print media.
The key is to take digital interactions like social media and eCommerce purchases and integrate them with interpersonal interactions. It comes down to two critical factors: making it easy for your customers and creating a unified message across all customer interactions.
3. Product availability or greater synergy?
For many, especially small and medium-sized businesses, being able to focus resources on product development and revenue generation is the priority. To achieve this, a good distribution approach will help manage relationships with retailers, customer service and allow organizations to tackle issues related to product and raw material availability, operating costs, delivery and distribution logistics.
One of the primary functions of a distribution plan is to develop a network of retailers that covers a large geographic area and efficiently reach as many consumers as possible. For example, using a distributor reduces the line of contact for the business and provides a fast and effective method to get their products to market.
Distribution is also about building growth at a faster pace at home and in global markets. For example, using an international channel distributor can help a product to reach markets all over the world.
Meanwhile, market expansion strategies are focused on having integrated business processes that will lead to better customer experience, increased customer loyalty, increased brand visibility, better analytics, accurate target marketing and higher customer retention.
You can collect and unify customer data from disparate channels and systems like online data, mobile devices, shopping carts, social media activities, mailing lists, point-of-sale systems as well as loyalty and referral programs. This data will allow you to analyze your customer behavior, interests and intent for better marketing campaigns that will ultimately lead to a higher conversion rate.
Omni-channel marketing creates better synergy across all your sales channels and consumer touchpoints by engaging with consumers through any channel they prefer. Whether it is mobile, online or in-store, you can also provide personalized on-site sales recommendations, support and improve their online experiences in a consistent and timely manner.
In summary, for businesses looking to access the competitive Asian markets, it is important to deploy the right market expansion strategies and what is truly important is that they must be unique to each company. For a clearer understanding of what market expansion strategies would work for you, you can learn more from an established Market Expansion Services provider like DKSH who has an established presence in major Asian markets.
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